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NEW ORLEANS - A federal court in Louisiana is rejecting transactions by The Dow Chemical Co. that created $1 billion in what the U.S. Justice Department calls "phony tax deductions."

Justice said Wednesday that the tax-reduction scheme was created by Goldman Sachs and the law firm of King & Spalding.

It involved creating a partnership that Dow operated out of its European headquarters in Switzerland.

Justice said Chief Judge Brian Jackson ruled correctly in saying that the tax benefits created by the scheme were artificial and that the corporate structure was created to exploit weaknesses in the tax code, not for legitimate business reasons.

The judge also imposed unspecified penalties.

Assistant Attorney General Kathryn Keneally praised the decision, calling the tax-avoidance scheme "offensive to all taxpayers who pay their fair share."